CH1 - Intro to Accounting

Question 1

What does accounting consist of?

Answer 1

Recording transactions to provide up-to date information and Summarising transactions over a period to provide information about the company

Question 2

What is a statement of profit and loss?

Answer 2

Shows business performance by displaying revenue and expenses of a business during an accounting period (12m).

Question 3

What is a statement of financial position

Answer 3

Reflects the business position at a point of time

Question 4

What is a sole trader?

Answer 4

Business owned and operated by one person

Question 5

What is a partnership

Answer 5

Business owned and operated by two or more people

Question 6

What is a company

Answer 6

Business owned by number of shareholders operated by directors

Question 7

What are the 4 full set of financial statements according to IAS1

Answer 7

1. Statement of financial position
2. Statement of profit and loss
3. Statement of changes in equity
4. Statement of cash flows

Question 8

What are assets?

Answer 8

Items a business owns or controls e.g. fixtures and fittings

Question 9

What are liabilities?

Answer 9

Items that the business owes

Question 10

What is contained in the Assets part of the financial position?

Answer 10

1. Non-current assets
2. Current Assets

Question 11

What is contained in the equity and liabilities section of financial position (SFP)

Answer 11

1.Equities and liabilities
2. Non Current liabilities
3. Current Liabilities

Question 12

What are the sections found in the profit and loss?

Answer 12

1. Revenue
2. Cost of sales
3. Gross Profit
4. Operating profit
5. Profit before tax
   6, Net profit/loss for this period

Question 13

What is capital expenditure?

Answer 13

1. Acquiring of long-term assets (> 12m)
2. Improve or enhance the earning capacity of long term assets

Question 14

Where is capital expenditure found?

Answer 14

Statement of financial position within non-current assets

Question 15

What is revenue expenditure

Answer 15

Short term expenses used within a year e.g. raw material or items for resale

OR Maintaining existing earning capacity of current assets

Question 16

Where is revenue expenditure found?

Answer 16

Recorded in the statement of profit and loss

Question 17

How are financial statements regulated? (5 examples)

Answer 17

1. Legislation
2. Application of judgement using established accounting concepts
3. Accounting and financial reporting standards
4. Generally accepted accounting practice (GAAP)
5. Need for fair presentation

Question 18

What does it mean by individual judgement for ethics?

Answer 18

Different way to judge a particular fact e.g. valuation of building in times of changing property prices

Question 19

What is the The international Ethics Standard Board for Accounting and the principles to adhere to 5. (IESBA)?

Answer 19

Developed an ethical standard for accounting to follow including

1) Integrity 2) Objectivity 3) Professional competence and due care 4) Confidentiality 5) Professional behaviour

Question 20

According to the IESBA what does integrity mean?

Answer 20

Professional accountants should be straight forward and honest

Question 21

According to the IESBA what does Objectivity mean?

Answer 21

Professional accountants should not be bias, allow conflict of interest or undue influence of others to override professional judgements

Question 22

According to the IESBA what does Professional competence and due care mean?

Answer 22

Maintain professional knowledge and skill at level required to ensure that client or employer receives competent professional service

Question 23

According to the IESBA what does Confidentiality mean?

Answer 23

Not sharing information as a result of professional and business relationships unless there is a legal or professional right or duty to disclose

Question 24

According to the IESBA what does Professional behaviour mean?

Answer 24

Complying with relevant laws and regulations

Question 25

What is the ICAEW code of ethics?

Answer 25

Charted accountants should demonstrate highest of standard of professional conduct and take public interest into consideration to maintain image of accounting profession

Question 26

What is the principles based system and what are the advantages?

Answer 26

IESBA and ICAEW codes are principles and not a set of rules.
Advantages:
1. Onus on the individual to consider the situation and follow guidance
2. Principles encourage compliance, whereas rules can results in individuals finding ways around rules
3. Rules can’t always keep up with rapidly changing environment
4. Principles -based systems can still prohibit where safeguards are not feasible.